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Economic Analysis of TV Row between BSkyB and Virgin Media, Providing TV Services in Non-Traditional Ways - Assignment Example

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Economic Analysis of TV Row between BSkyB and Virgin Media, Providing TV Services in Non-Traditional Ways
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Download file to see previous pages It is an issue relating to the ‘Dominant Strategy’ being played by Sky for the repositioning of its Basic channels. Virgin Media, the Cable Company in which Sir Richard Branson's empire is a major shareholder accused Sky of using its dominant position in Pay-TV to stifle competition. According to Sky, the row between the companies started because of the Virgin's refusal to pay the asking price. Virgin says that Sky is trying to dominate the market by asking 'more than double' charges for its channels with a view to 'coerce' virgin customers to switch to new providers by denying access to basic channels. Sky maintains that the price it wants is 'reasonable' taking into account the benefits it provides to the Virgin customers. It also says that it has adopted a 'product differentiation' along with the 'price increase' by offering a new 'high definition' service, where the quality of the broadcasting will be better. "It denies allegations by Virgin that it is demanding "more than double" the amount currently paid." (BBC News 2007) According to Richard and Mark (2007) "Sky added that its offer of 3p per Virgin Media customer per day is still on the table should the cable group wish to return. Sky added that it is still willing to supply its channels directly to cable households." The strategy behind the move of Sky is to reposition its channel Sky one by revamping it to include live football and UK TV premieres of big US films giving Sky One a content which is being currently offered under Sky's premium sports and movie channels. Couple with this Sky is providing programmes in High Definition (HD), which it claims as a key selling point. With this differentiation and improvements in the products, Sky demanded higher charges from Virgin.
Virgin Media implies that Sky is using its dominance in the market to its advantage. Steve Burch, the Chief Executive of Virgin says "we will not allow Virgin Media or our customers to be the victim of Sky's market power." Virgin says that it cannot afford to pay the charges being demanded by Sky since as per the costing calculations virgin would end up in paying Sky 1.23 per month per subscriber that is more than one-third of the 90p cost outlined by Sky. Moreover, Sky is also demanding a 'minimum guaranteed payment' that is twice the current annual payment being made by Virgin to Sky. "Virgin has closed the gap with Sky to some extent by signing deals with major content owners to offer programmes on demand - though these do not include US drama 24 and mainly cover older series" (Chris Tryhorn 2007)
To combat the pressure from Sky Virgin had already signed deals with some content owners to provide programs on demand. Virgin Media would continue to charge the customers at the same level without any reduction for the loss of Sky channels. Virgin says it would compensate the viewers with 2700 hours of on-demand viewing.
Effect on the Customers of Virgin:
With the Sky basic channels going off the cable, the viewers would end up paying more for lesser channels, although Virgin says it will compensate the customers with more hours on-demand viewing. Around 3.3 million subscribers of Virgin would lose channels like Sky One, Sky Travel, Sky News and Sky Sports News. They will not get the value for the money they pay to Virgin. This would result in the subscribers switching over to other providers where they may get full value for their money. ...Download file to see next pagesRead More
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